Today I am highlighting the investment case for three of the FTSE’s top growth stars.
Unilever
I believe that household goods manufacturer Unilever (LSE: ULVR) is primed to enjoy stirring earnings growth in coming years, owing primarily to its extensive portfolio of industry-leading brands. From its Persil detergent range, through to its Cornetto ice cream products and Dove soap labels, the business boasts a vast arsenal of blue-ribbon goods which carry exceptional sway with the world’s customers, and with it excellent pricing power.
With revenues expected to rattle steadily higher in the coming years, the City expects Unilever to record earnings growth of 10% this year, and by a further 8% in the following 12-month period.
At face value these figures do not seem to provide attractive value for money — P/E readouts of 21.6 times and 20.3 times prospective earnings for 2015 and 2016 correspondingly sail well above the watermark of 15 times which represents enticing value for money. Still, I believe that Unilever’s stable of top-drawer labels — products which the firm is using to drive innovation — not to mention its huge operations in promising emerging markets fully justifies this premium.
Meggitt
Engineering play Meggitt (LSE: MGGT) is in great shape to reap the rewards of improving conditions in its key markets, in my opinion. Not only is the business set to benefit from critical Western nations boosting defence spend, but accelerating civil passenger numbers should also underpin a steady flow of aeroplane orders in the years ahead.
The defence play recorded a rare earnings dip last year as constraints on military budgets weighed on sales. But this is expected to represent a mere blip in the Meggitt growth story, and the Christchurch firm is expected to clock up growth of 7% in both 2015 and 2016.
Consequently the company deals on a P/E multiple of 15.1 times for this year, and which falls to a mere 14.2 times for 2016. With the company chucking record amounts at R&D, and the order book ticking steadily higher — this rose 9% last year alone — I expect Meggitt to record solid earnings expansion well beyond next year.
Booker Group
Despite the impact of deflation across the grocery space, food wholesaler Booker Group (LSE: BOK) has managed to keep the top-line growing as a result of shifting greater volumes. This allowed the company, which operates the Chef Direct and Makro chains, to announce earlier this month that non-tobacco sales rose 2.3% during January-March on a like-for-like basis. For the year concluding March 2015, total sales edged 1.5% higher to a record £4.75bn.
The number crunchers expect Booker Group to follow an anticipated earnings advance of 11% for fiscal 2015 with an extra 13% rise in the current year. And a further 10% jump is pencilled in for 2016.
Like Unilever, Booker Group may not boast the most alluring earnings multiples on paper, even though a readout of 20.6 times for this year drops to 18.8 times in 2017. Still, in my opinion the company’s ability to keep revenues rising despite a challenging industry landscape merits this slight premium.
